In the last week, much has unfolded. Simon Crean has announced his retirement, so has Greg Combet, Stephen Smith has taken as respectable a retirement as circumstances will allow. Federal ALP has intervened in the NSW State branch. Dead wood is being pruned. Backyard blitz takes on a new meaning.

The makeover is starting to take shape. Tony Burke attempted to resign, and his resignation was not accepted. Tanya Plibersek is still Minister for Health. Jenny Macklin is still there and ministerial positions are musical chairs (deck chairs on the Titanic). Can these weeds be realistically controlled or made useful?

What really matters is policy, and why do we forgive them now? They created this mess so why should we believe they will really fix it, can fix it.

For a start, this parliament has only run it’s course through the support of amongst others Craig Thomson. Had Thomson been forced to vacate his seat 18 months ago at a by election Dobell would have gone Coalition. Therefore Tony Abbott would be PM today. Windsor and Oakeshott both former Nationals but now independent have played their part. They are both not contesting their seats and that means a notional 76 (tiny majority) to Coalition as things stand.

Then comes the question why did Rudd not challenge sooner?

If Rudd had have stood last March, he would have had 3 months more to turn things around. As policies change, why did he leave it until there was no apparent parliamentary sittings to debate these shifts in policy. It is left to journalists to get admissions of culpability over matters like the shift in immigration?

Why is Rudd scared of the opposition on the parliamentary floor?

He keeps taunting Abbott with debate me on Prime Time TV. Abbott is saying I won’t play the game. But at some stage he needs to play the game. He needs to give the electorate time to develop belief in the team he leads.

To find any rationality in all that is now upon us we have to go back further in recent history. Exactly how Rudd was overthrown in June 2010 and what were the real motives and who were the real players?

When Rudd and Gillard first came together as a leadership team, both were considered young and neither more chance. Rudd was prepared to serve under Gillard but Rudd was the better spokesperson. The ALP was desperate to end the Howard reign. Rudd had no factional allegiances, and Gillard was all things to all people. Rudd due to his diplomatic background won over.

Roll on to November 2007, they did the unbelievable, they won. Queensland turned a narrow victory into a massive one because for the 1st time there was a Qld Prime Minister. A golden period ensued. Costello retired. Howard was defeated in his own seat. Some was attributable to Workchoices other decisions were just human frailty.

Brendan Nelson was anointed Liberal leader. He said he would have a go. There was no heir apparent beyond Costello. There was Kyoto and Sorry and Rudd was walking on water, metaphorically. Nelson called a leadership contest, he was happy to get out. The Liberal party’s electoral stocks were atrocious.

The leadership was given to Turnbull. He wasn’t ready. Then came Godwin Grech and Utegate. Turnbull had no traction. Then came Carbon Tax and Copenhagen. Abbott took over, in a contest that included Hockey. The Liberal party was happy with 2nd best.

After Copenhagen Rudd was petulant. He spat the dummy.

The fools got in the way. Rudd dropped Carbon Tax cold and switched to a mining super profits tax. Some virtual unknown announced the coup on ABC TV by the name of Paul Howes, of the AWU. By the time that was decided Rudd was the first 1st term prime minister knifed by his own party. Gillard spoke of a good government who had lost their way.

Australia was in shock. Leaks were everywhere. All scuttlebutt. What was the truth? Arbib according to Wikileaks had been informing Washington what was really happening. Shorten and Howes were spokespersons. Richardson claimed a part, and implicated the Victorian right. All was based on gossip and leaks. The ALP went ever so close to losing the unlosable election. Gillard formed a minority government. Abbott had brought the Coalition back from the grave. Gillard show her real chameleon persona, she was simply do what it takes. In her words “the Little Doer” in public perception, power is everything. Australia gave her a very good go. Abbott acted as if he was just waiting for government to fall to the Coalition. The broken promise on Carbon Tax was just the beginning. The Coalition played it like a broken record.

The shambles that parlayed from there on in was just too hard to believe. HSU, Slipper, more broken promises, parliamentary salary increases, a budget surplus set in stone, oops an $18bn deficit, Eddie Obeid. When it was first announced on Christmas Eve that the guaranteed surplus was abandoned, because jobs matter, the death knoll had rung for the last time. Maybe not, maybe it was the NSW ICAC enquiries into Tripodi, Obeid and McDonald. Nothing will save the Gillard government. Don’t put away that gong too fast. The death knolls just get louder.

By the May Budget there was a massive disconnect. Coming from Caucus was this nonsense of a j curve. Sell our positive agenda, harp on about the Coalition negative agenda. But no one is listening.

The ALP needed desperately a circuit breaker. The only one was Rudd. Rudd the Dud according to prominent front benchers. They lined up to tell us what a dud he was in 2012. Those who spoke most freely and at length are all gone now. Those that spoke less candidly, knowing how foolish they looked, have survived, just.

Gillard had to find a way out, the ALP had to find a face saving exit. Shorten switches to the Rudd forces.

Was Rudd guaranteed an open mandate to fix the underlying issues? Please be clear on what issues.

We now wait.

Intervention in NSW ALP. ASIC claims the banks are gauging on term deposit rollover rates.

Hang on ASIC is a government agency but they have been silent for far too many years on the banks not passing on full interest rate cuts. Why is that pitched at the retiree sector rather than the mortgagee belt? Where is Glenn Stevens and the RBA or APRA. Oh investments! Australian Securities and Investments Commission!

So Rudd has got a friend, one at ASIC.

Rudd does a flying visit to Indonesia. Carbon tax moving to Emissions Trading System. Nothing is firm, not even the election date. Wow this is much more the opening lines of Macbeth than Act V Scene II.

Bubble, bubble, toil and trouble. Eye of newt & and toe of frog, Wool of bat, and tongue of dog, Adder’s fork, and blind-worm’s sting, Lizard’s leg, and howlet’s wing, For a charm of powerful trouble, Like a hell-broth boil and bubble. Double, double, toil and trouble; Fire burn and cauldron bubble. [Macbeth Act I]

What is left?

A 2nd string (journey man) Coalition leader. One that is easily labelled negative, and having little by way of policy. A closer run race where confusion reigns. He though he was MacDuff, but it was always Rudd, the understudy who was going to play the part.

Where and How will the ALP secure not only seats to counter New England and Lyne, but hold Dobell and Robertson and many many more. I can now believe that some seats like Kingsford Smith will be a stronger majority to the ALP. Garrett has gone. But winning 5 seats is different. Safe seats like Batman or Lalor, Melbourne or maybe even Denison don’t change the scenario.

They won’t. They can’t.

What will happen is that the Coalition will form government and be on the back foot from day 1. The Greens will struggle to win a senate seat but will still be the balance of power in the Upper House. Going for a double dissolution will not achieve anything. They might well lose the lot. Opposition leader Rudd could well be in a position to take back the government benches. No initiative allowing them to expunge the Carbon Tax will be possible. Only waiting until 2016 will see the Greens finished. It will be very difficult for the Coalition to make any significant difference.

The best thing about Shakespeare is that it does have an ending. How surreal!

Believing in sanity is indeed insanity.

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hile the dogs may have been called off on Wednesday and tethered or kennelled on Wednesday night, newly installed PM Rudd would do very well to remember what he has been forced to endure during his hiatus.

On Yom Kippur;

Those of the Jewish faith, rarely vote in person on polling day at a polling station. Saturday is their Sabbath. They can and do vote postal, or pre poll. Postal and pre poll numbers grow at every election. In this modern era of communication most people do not understand why voting takes place only on the Saturday, and do not understand why fines are issued when you fail to vote. Many believe getting your name marked off and going to a cardboard screen and using a blunt pencil to mark a valid voting paper is not just archaic it is beyond pre historic. There are so many diverse opinions, it is hard to condense, but those of the Jewish faith routinely vote pre poll or postal. So do many others.

The AEC makes extraordinary accommodations to attempt to uphold compulsory voting. You might find the occasional officer who takes himself just a little too seriously. For every one of those you will also find one equally lackadaisical.

The real reason you intend to re address September 14 as polling day is because you intend to get as much mileage from G20 in Moscow on September 7th as is possible, and ideally you would return from Moscow to conduct the official launch of the ALP election launch thereafter.

Nothing has changed. On September 21 football finals are at fever pitch. September 28 is worse. On October 5th you not only encounter football finals (NRL) but long weekend in NSW (Labour Day) and Sydney spring carnival horse racing. Any date after that means the scheduled sitting of Parliament in late August will proceed due to the fact that the electoral writs have not been issued.

This comes back to going to the polls in August. The electoral writs need 32 (or 33) days. You want to be in Moscow on September 7th and not let Tony Abbott have that honour. If you go in August can you guarantee that? August 3rd means you need to dissolve parliament by July 1st. By Monday you will not be ready. How many weeks do you need to get ready? Hmmm?

We are watching you clearly. We know you and the way you work.

On Electricity, Gas, GST and Carbon Tax.

David Murray said the Carbon Tax was an extremely inefficient tax. I cite him as a respected business leader. I absolutely agree.

Too many have forgotten, that GST was applied to electricity and gas in 2001 while not on water and other domestic services such as rates to address the concept of externalities (pollution). No steps were taken at that time with those revenues to force cleaner energy.

GST applies to domestic and commercial vehicles. In petrol there is double edged sword in the petrol excise.

A small part of domestic budget stress comes from electricity and gas prices. There are other factors. It also manifests in industrial competitiveness. There should be a proper rationalisation.

Tony Abbott has promised to not only remove the carbon tax, but have a white paper on tax reform, and move Deregulation out of Finance and put it into Department of Prime Minister and Cabinet. To say that the coalition does not have clearly elucidated policies is a furphy. It is more than that, it borders on contempt. We are sick and tired of being told what to think.

On the Australian Dollar;

The very core of this issue is the inflation target of the RBA. It is always in the too hard basket.

In the SPC Ardmona v tinned tomatoes dispute, we are now starting to address tariffs and restrictions again. In the J R Simplot talk of closing canneries in Tasmania the issues are similar. It keeps going, education sector decimated (foreign students), tourism at a competitive disadvantage. Shell closing first Clyde then any thoughts over Geelong. Caltex at Kurnell then at Lytton. Ford and more. Bonds closing manufacturing in Australia. Target and Rivers buying in Bangladesh without any conscience. We the consumer not caring nor knowing what we are buying. Labelling.

SPC is owned by Coca-cola. Simplot is American, must I go on.

Why is it mandatory for Australian commercial TV to have local content? That extends to BHP Billiton, or Rio.

Why are we subsidising production of petrol cars when we export so much gas.

Synopsis

Cut the double speak. As a child I always laughed in westerns when apache accused white man of speaking with a forked tongue. We are sick of being the play thing of foreign interests, and government being complicit. Ignorance or apathy or base stupidity.

Why are 2,000,000 Australian not participating in employment sufficiently? They are unemployed, not participating or want more hours.

Basic truth is a very rare commodity. We all must play our part, and our leaders must play their part.

Believing in sanity is indeed insanity.

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The measure of any Nation’s prosperity can be read by their Debt to GDP ratios. The Australian ratio has been low by world standards for a long time.

Australia’s “AAA” credit rating remains at the highest level – and there is a question in that statement – as other Nations fall down the rankings because their DEBT/GDP ratios rise all a result of the GFC Central Bank printing of money, and Australia’s ranking position improves despite the increased indebtedness, Australia’s ranking and avoidance independence from similar weakness is only a matter of time.

We depend on exports, yet with the high cost to do business with Australia and largely because of our healthy economic position, it will be the same reasons why we trip and fall down the rankings. We have priced ourselves out of the market.

Can you imagine any time soon where Australians will willingly take pay cuts, public servants accepting less remunerations and more productivity, where Unions turn militant against forced layoff’s and wage cuts?

Look to the P.I.G.S. Nations to see what potentially lies ahead … avoiding this scenario will require some hard political decisions. Opposition Treasurer Joe Hockey gave an excellent picture in his Budget Reply address – linked here – as what may lie ahead.

The vision was tempered because to tell it like it is would quash public confidence already down 7% since the Budget speech last week.

The chart below gives reason for concerns about the Australian Debt/GDP growth. [Click to enlarge in a new window.]

It is easy to see the difference between ALP and Coalition economic policies. Since early 82 when Hawke assumed office – the next 30 years of Governance has seen 11 years of Conservatives, and the balance with Labor. The Chart above shows what happens under Labor Governments, and how Conservative Governments impose restraints to spending and budget deficits.

Under Treasurer Swan, he has managed to do in five years what 27 years of previous Governments never did. Swan presides over the highest Debt/GDP ratios Australia have had in a generation, or for as long as records have been kept to make these comparisons.

…In economics, the debt-to-GDP ratio is one of the indicators of the health of an economy. It is the amount of national debt of a country as a percentage of its Gross Domestic Product (GDP).

A low debt-to-GDP ratio indicates an economy that produces a large number of goods and services and probably profits that are high enough to pay back debts. Governments aim for low debt-to-GDP ratios and can stand up to the risks involved by increasing debt as their economies have a higher GDP and profit margin. In 2011 United States public debt-to-GDP ratio was about 100%. The level of public debt in Japan in 2011 was 204% of GDP.

The level of public debt in Germany in the same year was 85% of GDP. Almost a third of US public debt of USD 16 trillion is held by foreign countries, particularly China and Japan. Conversely, less than 5% of Japanese public debt is held by foreign countries.

Australia ranked 12th of economies in growth of Nominal GDP from 1980-90. In the period 1990-2000 they ranked 16th, and in the period 2000-10 they ranked 10th – source linked here.

Australia’s debt levels are not critical when compared with many like type economies.

The debate about the failed Swan ‘surplus budgets’ and the escalation in our debt levels through record deficits, is a judgement call on whether this is the time – i.e. in the aftermath GFC – to grow Debt/GDP ratios as the rest of the world also increases its Debt/GDP levels.

For the Government to go on spending sprees that burn resources that may be needed to protect the economy when real hard times do visit our shores, the question becomes about the political agenda of those doing the spending, up against the real cost of protecting the economy.

The OECD record of Debt/GDP growth of the OECD membership gives clear illustration of the globes worsening financial position. This is illustrated in the OECD Member Debt/GDP Chart at right. This chart offers up nothing but bad news for the World economic outlook. [Click to enlarge in a new window.]

Since 2007 – the average growth in DEBT/GDP levels for OECD members has increased from 74% to 112%.

In coming months and years, the lenders of monies who have facilitated this growth in debt will be demanding higher interest rates as risk of default increases.

This average numbers applies to the OECD member group – Table of all OECD members and their Debt/GDP ratios provided below. [Click to enlarge in a new window.]

Russia is not a member of OECD – but the Debt/GDP numbers included in the Table to the right is sourced from the ‘Trading Economics’ database – linked here.

WIth Russian levels so low – the G8 average of 104% suggests that the other seven (7) Nations are in real trouble. This evidence proves what once was considered the world’s richest Nations are now fast approaching critical mass in economic terms. There is real change in economic power on the way.

Mr Swan’s continued claims that our numbers are good in comparison with other OECD members is a false truth – our DEBT/GDP growth rate since the GFC is the highest growth % of any of the OECD Nations – i.e. 13.8% in 2008 to 28.9% in 2013. That is a 109% increase in DEBT ratio – and only beaten by Ireland [157%], Spain [110%], and equalled by Slovenia [109%].

That puts Australia in some pretty ordinary company …

Mr Swan’s argument that the headline number of 29% is the envy of the rest of the world is true but has nothing to do with his economic management – John Howard can take credit for having such a low DEBT/GDP ration when the reins were handed over in 2007.

Mr Swan cannot crow about any of Australia’s economic prosperity – in fact he has done his best to kill all industry and commerce with his high A$ and high Interest Rate policy. He may claim that the RBA set both these policies – well he had better think about appointing RBA Board Members who are not friends of the ALP if they ever get the chance again.

Without China’s demand for our resources – no amount of spending by the Government would have saved the day.

On this Economic Trigger alone – Swan and his Treasury and RBA get a rating of ‘gross’ incompetence.

Defending the A$ rise after the sell off in early 2009 during the ‘resource trade’ exit would have given the Nation a 50% export revenue windfall for the next five years … that is worth A$trillions and whatever the RBA spend in defending the A$ would have be seen as chicken feed. This has been a complete misread of the economic fallout and demonstrates how ‘boofheads’ at the RBA and Treasury have no idea what they’re about in the new global marketplace.

Focused on Inflation containment in a market where every other Nation wants inflation gives insight to the RBA’s ancient thinking.

The ‘Australian Debt Clock’ has a history function for designing Charts – it is a great resource for image projection for the state of the Australian financial wellbeing.

Interest Rates are always an electoral banner line. It’s where voters feel the impact of botched or healthy economic policies.

The RBA are charged with monetary policy responsibility.

This goes to CPI – i.e. Inflation targeting, and the only dark-age tool the RBA is prepared to use to manage the policy is Interest Rates.

They don’t target currency – their biggest mistake, they only monitor all the other economic indicators as an adjunct to what they do with interest rates to punch holes in the economy if the pressures from the other indicators are of concern.

Even the Banks challenge the RBA’s authority when they don’t match and lag on rate reductions, yet apply rate increases in full and as soon as possible.

By example – in the last two years of official cash rate reductions this practice of delaying passing on rate reductions has been a media story.

Banks are openly defying the RBA – it is almost as if the Banks are a protected species – and the RBA too scared to play the heavy hand.

In the early stages of the GFC the Government gave the Banks ‘protected status’ and this gave the larger Banks a competitive edge over all the smaller players. In the aftermath of the 1987 crash Banks were also given special conditions in dealing with their eroding capital base and the continued writedowns they were carrying.

If a Government was looking for a sure means to raise revenues – why would they try to tax the miners when the Banks make mega profits in all types of markets.

A ‘Profits’ based Tax comment:

Given the maniacal focus the Government has on ‘profit-based’ taxes – all aimed at the resources sector i.e. petroleum and mining – one ponders why the Banks are not also targeted.

With collective annual profits from the NAB, ANZ, WBC and CBA over the last 3-4 years averaging $20-$25 billion per year – you would think that that would qualify them for a ‘super-profits’ tax.

The Banks are profitable in any market, more so when economic times are buoyant. Since the GFC and after the Commonwealth gave then preferred Banker status with guarantees, Australian Banks continue to rank among the most profitable in the world.

Targeting the high-risk mining sector is a lottery exercise for budget estimates on tax collected as the last year has proven.

With the capacity to write down mining leases, infrastructure, and bring forward expenses into current years through tax minimisation schemes, the mining industry are not a sure bet profits based tax system. The Banks are.

The four Banks mentioned are Australian owned, Australian based, surely a super tax on Bank profits is a more apt tax grab then targeting the resource sector.

One has to think what the likes of Twiggy Forrest, Gina Rinehart, Clive Palmer, and other mining magnates did to draw the attention of the ALP with the super-based tax.

The miners pay ‘royalties’ to the States and the ‘super-profits’ tax competes with State revenues and the royalties charges. It’s a direct conflict and the law courts should uphold the legitimacy of the MRRT –

This is a great chart to show the GFC impact on Australia’s Debt/GDP ratio, relative to historical trends with CPI and the 10 year Commonwealth Bond yields.

Mr Swan’s comments about our core Debt/GDP levels being the envy of the World have face value. But to say further, if Mr Swan thinks he can brag about that being his or this ALP Government’s responsibility he lies and takes credit where credit is not due.

Our own GFC crisis still awaits us – in recent times the FORD plant closures, the petroleum refinery closures, the HOLDEN troubles, the mining boom ending, te tourism industry in tatters, the manufacturing and retail industries – all are showing signs of fatigue with a labour force cost pushing jobs off-shore.

The fall in the A$ since the budget will help, but it’ll take 18 months or so for it to impact on the economy if continues to head lower.

Again, this Chart does an excellent job of proving evidence in how the RBA has screwed all Australians – they would never look at it that way – but that is the reality as offshore investors take advantage of the interest rate gap that feeds to the high A$ – that also feeds to our ‘most expensive Nation to trade with status’ …

Why is the differential there in the first place … in response the RBA will argue it is the premium that has always been there … but the chart reveals the gap during the lead up to the GFC in 2007 was a premium of 1%, during tha GFC crisis that gap blew out to 7% in 2008, and in more recent times has narrowed to a 2.5% gap.

During the worst of the GFC – the Government spend like jack rabbits and the RBA boosted interest rates, before allowing them to fall in a gradual fashion – always keeping a 3% and more margin between the US and Australia’s official cash rates.

Does the RBA think it better at economic management then the rest of the other G20 Finance Ministers …

Perhaps the RBA can claim some fame for keeping inflation in check – but who cares in a market where the risk is more about deflation … talk about incompetence and focus on the wrong game …

Australian Mortgage holders are still to this day paying 2-3% above those rates of our major Trading partners.

In the period since the 2013-14 budget speech the A$ v US$ has shown weakness, the Treasury head has come out and forecast that their modeling was all wrong on so many levels. Even said that the new budget was already under pressure because some forecast resource prices have already come under pressure.

Today we had Holden issue a statement that its workers would have to take pay cuts or lose their jobs. How do you think the Unions will respond to that. Tis is the dam wall crumbling and all under Swan’s ‘Jobs and Growth’ mantra … the idiocy of his failed understanding in how a high A$ combined with real high Interest rate policy settings have destroyed Australian industry will be revealed in coming years.

The RBA won’t think like that because they are no longer Bankers – they are bureaucrats with one eye on their pensions and careers. The RBA’s charter and mandate needs an overhaul like many other choked Government Departments – i.e. Justice Department to name one.

There are many prongs to how ‘currency value’ impacts on every aspect of the economic cycle and triggers. It is the most important of all ‘triggers’.

A$ v US$ since Float with Averages – [click image to enlarge in a new window]

The Chart above plots the Trade Weighted Index TWI, against the A$vUS$ since the 1983 float of the A$. There is a lot of detail and further explanations are offered below:

Averages:

The A$ v US average since the float has been A$0.7557.

The average for the A$ up until the pre GFC in Jun 2008 was A$0.7199.

The average since the ALP win in late 2007 is A$0.9332.

The average since Gillard became PM in mid-2010 is A$1.0182.

The average value during Howard’s Prime ministership was A$0.6736.

These numbers portray economic times and how the World has perceived the Aussie Battler and how our resources have impacted on our trade and current account numbers and all offset by the higher A$ value.

To explain further:

Resource contracts with our export Nations are domiciled in US$’s. So in raw terms a 100 million tonnes of ore exports in SU$ terms would return Australian exporters an A$ value dependent on the exchange rate, and the price of the ore.

With the A$ at the long-term average of A$0.7557, that would equate to A$ receipts of 133.2 million.

The same trade with the A$ at its post GFC average of $1.0182 returns the exported A$98.2 million. That is a 26% reduced revenue if the Iron Ore price in US$ terms stayed constant. But we know that is does not – see link here for 5yr monthly price of Iron Ore in SU$’s.

From this example one can see that as ore, coal, agriculture and the many more commodities prices fluctuate, the revenue to Australian produces gyrates on two fronts – currency value and commodity value.

Commodity prices are set by supply and demand and since the GFC, China holds pride of place – all roads lead to China as a trading partner – struggling economies want China’s business. That gives China a wedge and advantage on so many levels.

It is not hard to imagine what China can do with this position – it is not beyond the imagination to think that China could pull orders for Iron Ore [i.e. stop buying] around contract renewals to allow the price to fall and have miners scramble to renew contracts against the new miners wanting to climb the ladder for Chinese business.

This is the new ‘WAR’ – it’s a global war on trade and the human factor is ‘labour costs’. So as Australia with a fixed wage system and Unions to get involved when seen to be needed, current wage costs in Australia will see this Nation’s competitiveness erode as other Nations usurp our export markets with cheaper goods.

This should be the only thing the RBA should be focused with – and if they don’t see it as important, then the Treasurer and the Government who set policy should have had this matter on their radar for many years and have implemented measures to weaken the A$ … obviously it has not happened – and why is that?

Only one answer – our Leaders do not understand finance, nor what it is they do not understand about how markets work.

Under Gillard the A$ v US$ has maintained its lofty levels without any language since 2008 until a few months ago about how the A$ is not the reason for revenue write-downs.

See Chart below to see the A$ performance during Rudd and Swan’s, and Gillard’s and Swan’s tenures …

A$ v S$ during GFC period and to current:[click image to enlarge in a new window.]

The dump in late 2008 and recovery from early 2009 proves that the decision makers had no idea what was afoot at the time. Currency Management has never been a priority of this Government or the RBA. This is absolute ‘hillbilly’ economic management.

In the toxic investment environment prevailing world-wide during and immediately after the GFC – off-shore investors had to find a safe haven for their funds. Their criteria needed stability of scales, leadership, relatively stable economy, a economic status that was tapped into the world economy, and most importantly, an opportunity to secure a return on that investment via interest rates, and/or a currency that would not in all likelihood depreciate or erode capital.

There was only one option – Australia. As China’s demand for resources were not affected by the GFC – the selloff in the A$ in and during the GFC worst days gave a million reasons to reverse that sell order – the currency was now below $0.50c, half its value a few months earlier. To add to the gravy ride, the RBA mover interest rates up against what every other Nation was doing.

Stupid right … but invite these investors we did and they came in with their $100’s billions and the RBA gave them assurances talking up the interest rates saying that they had to keep them high for fear of inflation pressures. What a cock-suck …

Blind dumb idiots in a panic did exactly what the carpet baggers of the world wanted. And here we are now … raped and sucked dry with a siphon hose stuck right up our arse allowing the wealth to be sucked out of Australia without any ‘risk’ premium involved.

Currency value is the be all and end all in the new global trade wars … high currency means expensive labour costs from an off-shore perspective. It is an instant kill shot to industry and the growth in export markets. It encourages imports which in turn leads to job losses and internal economic slow down.

The opposite to all things Swan is so proud to advocate. His ‘jobs and growth’ speeches are famous for the hollowness sound they echo.

Added to Swans stupidity is that of the RBA’s inflation targeting policy, and the Treasury modelling he uses to frame his budgets, all still focused on things that mattered 20 years ago – this Administration’s economic management makes George Bush look pretty good.

Swan will realise in his golden years what it is that he did for Australia – one wonders will that make him humble …

In the next Chapter the ‘Terms of Trade’ and ‘Current Account’Economic Triggers are examined.

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Employment and Unemployment is a result of economic health – it has a ‘double-whammy’ effect in good times and in bad. As employment grows and unemployment falls, the Government collects more tax and pays out less welfare. If employment falls and unemployment grows, then tax revenues are down and welfare payments are up.

The Table at right – [Click on Table to open and enlarge in a web browser window.] reproduces the ‘Unemployment’ numbers forecast in successive budgets since 2007-08.

The ‘actuals’ result versus the forward estimates make for some interesting assumptions.

For example the 2008 forecast for 2009-10 was for 8.25 % unemployment ton the back of the GFC crisis. In 2009-10 the forecasts for 2010-11, 2011-12, and 2012-13 were also high relative to actuals and again were in fear of the GFC impact.

These high forecasts meant the budget expenditures had high welfare numbers that were never needed as ‘actuals’ proved.

In fact the savings in the ‘Unemployment’ expenditures should have been a reason to celebrate. The 2009-10 forecast of 8.25% against an ‘actual’ of 5.2% measures an error factor of 3.05% or 37%.

The budget savings on this number from a 10.971 million employed workforce – [see Labour Force Table overleaf] would be roughly 350,000 jobs. With a fortnightly Newstart allowance payment in 2010 of near $550 at the time, the budget savings equates to near $5 billion.

The budget deficit in 2009-10 was $56 billion against a 2008-09 forecast of a $22.4 billion surplus. The $5 billion windfall savings makes the deficit look even worse.

Similar errors were made for the 2009 forecasts for 2011-12 unemployment numbers – i.e. forecast was for 7.5% against actuals of 5.1%.

Two things – the GFC was an easy excuse to lift unemployment forecasts, and the resultant savings from reduced actuals were never used to increase the forecast surplus – i.e. the $22.4 billion forecast became a $56 billion deficit. What is $5 billion in Unemployment savings going to do against a Government with a Budget deficit some 400% off target.

The flat line context in the forward estimates for Unemployment numbers across the 2012 and 2013 budget estimates will look challenging as job losses across the Nation continue to mount over plant closures, and resource industry wind-backs.

And all as a direct result of the continued high A$ impact on competitiveness in manufacturing and other export related industries since before the GFC.

Labour Force:

The ABS produces the Labour Force numbers monthly and based on ‘sampling’, after adjusting for seasonal factors and a six-year smooth average.

It’s a ‘bullshit’ number pumped full of bureaucracy steroids to give the best possible numbers.

For example – when Swan and his fellow Ministers brag about 971,000 jobs created, what he should say is that there have been 493,000 full-time jobs and 478,000 part-time jobs.

[See Table Below: Click to enlarge in a new window.]

The liar illusion Mr Swan promotes along with all his Parliamentary colleagues is the economic prosperity we all enjoy because this Government has created this number of jobs …

The reality in the Table of Labour Force data above is that average monthly hours worked has been falling since the early 2000’s – down from 145.3 to 140.4 hours per month in Mr Swan’s term as Treasurer.

Also, every December/January some 200,000 school leavers begin to look for work. Come mid-January and if they have not found work they join the ranks of the un-employed.

This number is ‘smoothed’ by the season adjustments and the six-year average – i.e. every new month or each year a number from six years ago drops off … it is hardly a true indication of real un-employment in the now time frame …
People not registered but looking for work and in receipt of no welfare only get picked up if the sampling caller talks to them all.

People on un-employment who are attending courses are also treated differently, as are long-term unemployed … in fact the ‘un-employment’ number could not be more ‘doctored’, and when forecasting the number for budgetary purposes economic forecasts are about the best guess any forecaster can employ.

The job losses in the last 3-4 years because of the High A$ cannot be measured. Ford sacked 1200 employees a week ago – that was currency related – all the tourism workers now gone and working in mines are somewhere else – a 40 year industry build on Hogan’s ‘throw a shrimp on the barbie’ is in trouble.

Australia produced raw materials, the resources are shipped offshore for ‘value-added’ improvements, and then we import it back here as ‘trinkets’ from China that in six month’s time is on a scrap heap somewhere.

What are Australia’s strategic fuel reserves – information to hand suggest we have about a fortnight’s fuel supply and with refiners shutting down operations because of the High A$ – what happens if we’re held to ransom by a trading partner supplying us with refined fuel or oil …

One of the major failings of all Governments in the past has been in identifying essential industry and business to Australia’s needs, and making sure those industries serve Australia’s interests.

Turning iron ore into steel for example – we’ve shut down most of our steel mills because of the high A$ and cheaper offshore labour costs.

We’ve also exported the emissions associated with the industry to offshore Nations with less than ‘best practices’ for the environment. We still need the steel and when we buy it back at a multiple of the price our miners sold it for – that difference equals Australian jobs.

If world commerce carries on and turns the way it is – eventually we’ll be depended for everything … and what will that do to jobs – the only growth industry will be aged care and euthanasia casualties – i.e. mortuary’s.

The formula is simple, when a Government increases its own budget spending, GDP growth will reflect that spending.

When Mr Swan brags about Australia’s economic climb to 12th on the list of ‘nominal’ GDP rankings – his spend over the past years via massive deficits has fed to that growth. The GDP growth is not natural but Government induced and all for a cause that is beyond sinister when Swan brags about the same growth factor because of good economic management.

Look at the last four years in the Chart above – it shows the impact of large deficits on GDP growth [2009-2012] – as compared with 30 years of previous GDP numbers: [click chart to enlarge in a new window.]

The Swan growth years are manufactured, and knowing what Australian’s now owe – can we ask Mr Swan to give us his reasons to borrow the way he has against the consistently promised budget surpluses?

To make the analogy – the 2012 deficit was $47 billion, and the deficit for 2013 is now forecast at $20 billion.

Does the fall in GDP from actual 3.5% in 2012, to the presumptive growth of 2.6% in 2013 have a connection with the reduced budget deficit?

Definitely – the past years Government expenditure as a factor of the GDP number has averaged A$7.6 billion since 1980 – [i.e. the Government spend as $ factor of GDP]

Another way to look at Government spending as an impact on GDP is to divide the Government Expenditure into the GDP number – this yields a GDP ratio for every Government dollar spent.

In the last four years the GDP impact on Government spend is at its lowest level ever. The ratio of the Swan years is A$4.1 billion. See Chart above: [click to enlarge in a new window] – that means Swan’s spend is getting less bang for the buck spent.

In 1980 under Fraser every A$ billion Government spend yielded $16+ billion of GDP growth. In the last four years it is near $4 billion – meaning spending power by Government in the economy is a quarter what it was 30 years ago.

This can be seen is a good thing – it highlights the diversity of the economy at large.

The GFC and the Response:

There is no doubt that the GFC had Global impact and the visible severity was contained to Europe and Nth America.

Western economies and their Central Banks instigated QE policy’s to flood money into the banking system to prevent it collapsing.

Out of that came a greedy Bank response – they took the monies and locked it into liquid assets – i.e. Government Bonds and the like. They made a decision to not lend the funds because they had capital issues and the GFC downturn meant businesses were failing all over the place.

The Banks perspective was to watch the economy meltdown and survive … they were happy to see jobs contract, house prices plummet, and small businesses go to the wall. It vindicated their choices and the Central Banks were stumped.

Governments were pissed, so they had another go and targeted more spending directly at households, this also failed – rather than spend the money to fuel consumption, the people largely paid down debt.

Now Central Banks and Governments are hesitant to print more funds as growth shows little signs of recovery, jobs growth in Europe is non-existent, the US is showing some signs of recovery, but by and large, Western Nations are still hovering over the abyss …

Some 4-5 years after the event EuroZone Nations like the P.I.G.S. continue to suffered under the Euro currency preventing offshore investment. This will ensure the Euro crisis continues indefinitely until Nations opt out and retake their currency and let it devalue under market forces to levels where their population can compete on a global stage.

Example – would you travel as a tourist to Greece, Spain, or other P.I.G.S. Nation if the value of their own independent currency was a third of what it is now under the Euro value?

ABS GDP Data:[click image to enlarge in a web browser window.]

Mr Swan’s challenges with GDP are on show via several data base sources.

Australian Bureau of Statistics [ABS], RBA, Trading Economics, IMF, CIA, UN, World Bank, and then there are the private researchers tapped into all these resources looking for insight into where the numbers just don’t add up.

Table 4 at right is sourced from ABS database. The Year on Year [YonY] number is the hard data averaged. The [+/- Mean Avg] column is the variance from the mean average.

The construct of this Table provides patterns of GDP growth that extend or contract from the average.

The chart below plots the recessions in true context over the last 30 years – 1982, 1991-2, [the recession we had to have], late 90’s [Asian crisis], early 2000’s [9/11]. The Chart also shows the weakness since the GFC [2008 – ].

Variances to Real and Nominal GDP against Mean Averages Year on Year: [click image to enlarge in a new window – sourced from Table 4 above.]

This chart is complex in its compilation – the GDP real and Nominal were averaged over the 1981-2012 years. The % growth of each year was then measured against that ‘mean’ average.

Swan tells us that we avoided recession – [recession is defined as 2 negative quarters if GDP growth] – but if Government stimulus propped up the numbers – i.e. exchanging debt for good numbers – the price to be paid is just shoved downstream for the next guy to deal with. In fact this has been happening by successive Governments globally since the 70’s.

It is obvious that something happened to the value of ‘Nominal GDP’ verses ‘Real GDP’ in the 1991-92 Recession. Nominal GDP turned negative against mean averages and only recovered to positive numbers in 2007, ‘08, and ‘11. This points to the impact on Nominal GDP because Inflation targeting has been working.

To help Mr Swan explain away the so-called ‘revenue write-downs’, he has gone to great lengths to blame the relationship between ‘Real’ and ‘Nominal’ GDP as the reason.

The Chart above tips ‘crap’ all over Mr Swan and his debate reasoning.

It would appear Mr Swan and his Treasury advisors get it that as inflation banding, [CPI] narrows and the real cost of money tracks down – the difference between ‘Nominal’ and ‘Real’ GDP growth also narrows. This is simple is it not.

For Mr Swan to promote this natural result as responsible for revenue write-downs is a ‘long-bow’ … and put out there in the hope that nobody will understand the mis-direction it comes with.

Further evidence of the impact of Government spending on GDP growth comes from the Chart below.

Over a 30 year period, Government Expenditures have grown from 6% lows in the early 80’s, to the 25% averages under Wayne Swan. This by the definition of the formula means as Government expenditures rise so does the impact it has on GDP growth.

Mr Swan boasts about the record GDP growth under Labor, and how Australia now ranks 12th in the world and overtaken a few GFC affected Nations. He also uses his favourite catchcry headlines when he fronts the media to respond to economic releases including – ‘contained inflation’, ‘new job creation’, ‘low interest rates’.

Regardless whether the numbers be good or bad, Swan’s intent is to brainwash Australian’s into believing the Government is doing a good job in managing the economy.

To believe that would be wrong. Mr Swan claims credit for the inflation and low interest rate success’ – yet the contraction in Nominal GDP growth as a result is blamed for revenue write-downs. Mr Swan can’t have it both ways …

The Chart overleaf plots Government expenditures as a % of GDP against the year on year growth of Government expenses – [click image to enlarge in a new window – sourced from Table 5 below.]Table: Government Revenues and Expenditures as % GDP, averages, and variances.

Between the early 1990’s and 2007, the range of Government Expenditures as a % of GDP was between 13-17% levels. The jump to 20%+ levels started with the GFC spend in 2008 and has continued for all of Labor’s time in office.

Yet the evidence in hindsight suggests that Australia escaped the worst of the GFC crisis. In fact there was no real GFC impact in Australia and the Government stimulus used was largely a taxpayer spend that was not needed.

We were untouched other than the flight of capital that drove our currency from parity with the US$ to below A$0.60c in a few months during 2008. By the end of 2009 the currency had regained all of its losses and went on to reach highs above A$1.10c.

This is summarised by the actions of offshore investors who realised Australia was immuned via the China demand for resources, and the money flooded back in with additional new money that drove our currency to above the A$1.10.

It has averaged around the A$1.04 ever since the GFC impact. See A$ v US$ Currency chart link here.

There were two shocks associated with the GFC – the first happened early 2008, and the second after the Beijing Olympics in Oct 2008. For the next six months the markets were in turmoil.

The Rudd stimulus packages were rolled out through the 2008-2010 years. The ‘expenditures’ in the above chart over the 2008 -2013 years have shown growth levels year on year never before seen.

The trend in growth is indicative of Political Leaders misjudging the understanding of economics.

Politics is now the bigger story and that stems from increasing political egos fighting for the media limelight. Forget the truth and honesty of the numbers being produced by the Government, selling a message to mis-direct opinion has worked for Mr Swan all the time he has served as Treasurer. Mr Swan has never offered humility – only hubris at those who wish to point out the obvious mistakes made.

Winning Government has become about the ‘candy-store’ giveaway and that led to the reasons for the GFC – debt upon debt upon more debt. And since the GFC – it has been more debt on top of more debt and so on.

If one was to point to a reason for the GFC – it is easy to conclude that the rise in Government spending as a ratio of GDP across the globe over the past 40 odd years is a major reason.

If the Swan Budgets were produced for a public listed Company in any Nation – he and his Treasury cohorts would be in front of the Courts explaining how they could justify the expenditures based on unproven revenues.

Government has to learn to understand finance, the cost of money, and its true value relative to our major trading partners.

There are many lingering thoughts – Howard and Costello were very generous with ‘middle-class welfare’, and all through this ‘handout’ phase, the budget surplus kept on growing as did the health of the economy. Why?

A Question: Are Middle-Class welfare recipients more likely to spend the Government handout on consumables that feed to economic growth, as opposed to low-income earners who use welfare for basic needs, i.e. rent, mortgage, essential living costs …

Nominal v Real GDP Year on Year – [click image to enlarge in a new window.]

The gap between Nominal and Real is obvious. In the Chart below the relationship with CPI is also obvious.

Nominal GDP Year on Year v CPI – [click image to enlarge in a new window.]

The CPI shape up against the Nominal and Real GDP growth patterns in the charts used above does not support Mr Swan’s assertion that ‘Nominal v Real’ GDP numbers are to blame for his so-called Budget forecast revenue write-downs.

A better explanation would be that the revenues were inflated to support the expenditure targeting. And/or – that the expected MRRT and Carbon Tax forecast revenues did not materialise.

All this series of Charts demonstrates is how targeting CPI growth flattens the difference between Nominal and Real GDP comparisons.

This is common sense really – as inflation targeting works and volatility wanes, the value of Real GDP v Nominal GDP adjusted for CPI increases, has to reflect the same narrowing and consistency of inflation performance.

The Federal Budget Papers were not reporting on this number or forecasting it prior to Swan’s appointment as Treasurer. Someone told Mr Swan about the stat and Swan took the bait to use it to confuse media scribes who knew nothing about the resource measure.

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This is spelt out in a bipartisan agreement from both sides of the House. Their ‘ROLE’ is spelt out in part below:

The Reserve Bank Board’s obligations with respect to monetary policy are laid out in Sections 10(2) and 11(1) of the Act. Section 10(2) of the Act, which is often referred to as the Bank’s ‘charter’, says:

‘It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank … are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

The RBA Board are Government appointments and the last one was Ms Rideout the ex-boss of AIG – [Australian Industry Group].

Ms Rideout was a Gillard/Swan political appointment and brings years of Labor Party schooling to the table. She was a keynote speaker at the recent AWU Annual conference on the Gold Coast.

Quite unusual for a RBA Board Member to speak at a Union delegates meeting – is it not.

The RBA Board are seen as a conservative bunch and for Ms Rideout to venture into a Union delegates conference as a new appointee to the RBA Board – must have raised some eyebrows.

We live in changing times and this visible connection between the AWU and a RBA Board member sends a message that reeks of some many bad things …

RBA’s mushroom thinking:

The RBA’s inflation targeting is a leftover from the late 80’s and early 90’s where inflation killed the economy and prompted Keating to confess the famous words: ‘the recession we had to have’.

Interest rates during that period were pushing 20% and in some cases went above for higher risk Bank clients.

Federal Government bonds underpinned the market and were above 14%, State borrowings where higher and the lesson learned was that inflation was the enemy.

It no longer is – yet the RBA modelling as with all Treasury thinking remains entrapped in an economic management mindset that has long ago since progressed to different market conditions and with a different focus.

It’s now a global market where ‘hot’ money floats around the globe looking for weak regulatory controls and Central Banks stuck in the dark-age thinking – all with the intention of exploitation the local economies.

Australia is one such plum picking – we are 23 million people, yet China has for 20 years used its pegged currency to create its transition into a super power of economic activity. Swan and his Treasury and RBA minions take pride in a floating currency – yet history tells us that under a fixed currency system before 1983 – the Government made decisions to ‘devalue’ and never to revalue.

There is knowledge in that history – but dumbass bureaucrats think they know better.

The world now trades in things like labour costs, value added and that is all to do with currency value. Jobs being exported offshore are about domestic costs verses international costs.

For years our Current Account has imported that cheap labour to our shores via cheaper imports … nobody ever though that the end game would be loss of jobs here. The catalyst is currency value. At A$0.75c we were competitive with the rest of our trading partners. With a currency value at or near parity, we have gifted our competitors a 35% discount – i.e. we are now 35% more expensive to deal with.

Australia is none of these things, and both sides of politics do not support currency intervention, nor other tariff, or excise policies to combat the trade wars that have eroded A$ trillions in export revenues over the last 10 odd years.

If inflation is to be controlled by interest rate targeting, why is it that 0% interest rates in Japan for 20 odd years has never caused inflation? Why is it that with 0% interest rates in the US, and other major economies they don’t have an inflation problem?

Since the GFC inflation is nowhere to be seen in the Nth Hemisphere. Inflation is no longer the enemy.

A Case Study – Japan’s need for Inflation:

Japan came out late last year telling the world it was going to buy inflation and would do everything to devalue their currency, and lift inflation to 2% and above. See Bloomberg story on-line here.
Japan economy since last Nov ’12 when the Government announced massive stimulus packages has been reflected in the Nikkei Index.

The Nikkei Index rose from the 9,000 levels to just under 16,000, before a near 2000 point sell-off last week on the back of comments made from Fed Reserve Chairman Ben Bernanke.

Given where the Nikkei has been over the last 20 odd years – it was above 37,000 in the early 1990’s – this recent rally since last November was again all speculation. What goes up will come down in market speak. On the back of this stimulus, the ¥Yen has reversed its modern day strength. See short term chart below: [See 1yr and 10 year charts above. These Charts courtesy of Incredible Charts.]

10 Year Chart:

1 Year Chart:

Not only have Japan printed billions of currency for stimulus purposes, they have also entered the market to sell their currency against a long term trend of appreciation against all major currencies. [See currency charts below.]
Long term ¥Yen currency value against the US$

Short term ¥Yen currency value against the US$ – showing recent inteventions.

The long term strength of the ¥Yen has been the reason for their economic ‘stagnation’. Enough is enough the Japanese Leadership have said.

Wait – it gets better, look at the last few quarters of GDP growth, [Source http://www.TradingEconomics.com ], and the Debt/GDP numbers over the last 25 odd years in the Chart below. [click to enlarge]

Summary of Japan’s actions:

Never underestimate what Government spending can do to hold up an economy. Japan’s DEBT/GDP will explode is the Japanese themselves don’t start to spend domestically. The Japanese are playing a very dangerous game with risks beyond what the GFC delivered.

Japan and the rest of the world are in a trade war with China and their pegged currency.

Recent mumblings from around the world support Japan, Germany announce yesterday their own abandonment of austerity in favour of investing in Southern Europe … read that story here … snippet posted below:

… The role he was slipping into last Wednesday was new for Schäuble. The man who had persistently maintained his image as an austerity commissioner is suddenly a champion of growth. If Germany couldn’t manage to trigger an economic recovery, “our success story would not be complete,” he said. And as if to convince even the die-hard skeptics, he added: “The German government is always prepared to help.”

After three years of crisis policy, it was an impression shared by very few people in countries like Portugal, Spain and Greece. They are more likely to associate Schäuble and his boss, Chancellor Angela Merkel, with austerity mandates ushering in hardship, deprivation and unemployment.

But a new way of thinking has recently taken hold in the German capital. In light of record new unemployment figures among young people, even the intransigent Germans now realize that action is needed. “If we don’t act now, we risk losing an entire generation in Southern Europe,” say people close to Schäuble.

Berlin is making an about-face, even though it aims to stick to its current austerity policy. The German government has stressed budget consolidation and structural reform since 2010, when Greece was on the verge of bankruptcy. Berlin has been arguing that this is the only way to instill confidence among investors in the battered debt-ridden countries and help their ailing economies recover. … continues …

The World is in one giant poker game – and a few players have gone ‘all-in’ on weak hands.

Stand back and watch the carnage unfold.

CPI v Interest Rates:

No – the reason the RBA keeps interest rates at a margin above the major trading partners is to attract capital … and Australia’s mortgage holders pay the price via higher mortgage costs as a result.

It’s been said many times here before – the rest of the world has a siphon hose plugged into Australia’s back door raping and pillaging our wealth to feed the carpetbaggers of the investment world. Australian home-owners are the ones paying the price for the RBA’s incompetence over their High A$ policy and the higher interest rates applicable in this Nation compared with the rest of our major competitors.

Inflation is as good an indicator for the future in this post GFC global marketplace as a barren cow, and it’s about time the RBA and Treasury got out of its own way and figured it out for themselves.

Because Inflation is an RBA charter, the modelling for Budget forecasts assumes the RBA targeting will get it right most of the time, and with that brilliant foresight the Treasury modelling bank the RBA’s targeted inflation rate into their forecasts.

CPI: Actuals v Budget Forecasts

In the CPI Table at right – you can see the stoic numbers and it makes you wonder why the Treasury bureaucrats are paid the big bucks. Look at the forecasts and see how often Mr Swan signed off on correct results.

Since 2007-08 there is not one forecast number within 20% of the actual results. Most are over 50% in error and some well over 100% … is there any wonder the budget results are $290 billion out from forecasts …

The record of actuals verses forecasts would make anyone who believed Mr Swan’s budget forecasts across all his last six Budgets some sort of fool.

If Business made investment decisions based on the biggest business in town – i.e. the Federal Government expenditure spend, there would be some busted up businesses.

Given all that has been said in these series of post about how the RBA targets Inflation – you would think they would be good at it. The Budget forecasts when stacked up against the actual results suggest poor performance that has contributed to the budget errors.

Look at every year in the CPI Table at right and you will see the variances in each and every year.

The RBA suck at forecasting CPI … and the budget framework around the CPI targeting would be blown apart by the errors in these actuals verses forecast numbers.

Nobody doubts the global economic conditions are tough to predict. The GFC has played havoc since 2008 and will continue to do so. But when a Central Bank uses interest rates to crush any sign of inflation – getting the inflation targeting comes with a high price for failure.

Some of the forecasts in the Table are out by well over 100% when measured against the actual result. This is poor form and unforgivable in economic terms.

Across all the years since 2007-08, there is only one forecast that is out by a minimum of 25% – every other number is out by 50% or more, and more than half the revision forecasts are still out by 100%.

Whatever credence the Treasury places on CPI in its modelling – do they know or realise the historical errors in past forecasts, and do they load the budget with this knowledge?

To help with the visual of the CPI Table data at right, the above chart – [click to enlarge] – plots Government Expenditure growth year on year as a percentage, plotted against the CPI annual rate.

The chart below [click to enlarge to get a better perspective of this chart] – is a very good chart to show how Government Expenditures and Revenues have grown Year on Year – verses the Annual CPI, with mean average for Revenues, [8.12%] and Expenditure, [7.80%] growth since 1981 – plotted as a straight line in the chart below.

CPI is a very important number – Economic Trigger rated 6 out of 10 where currency is the 10/10 benchmark. But when the RBA get is so wrong and it is their main charter – blame is due where mistakes are made and the RBA have to wear their share.

This does not let Mr Swan off the hook. He is in a position to make decisions about all the Economic Triggers – the fact that he has sat on his hands over the Currency proves his understanding is not in the same league of the off-shore players raping and pillaging this Nation through currency based trading.

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The economic triggers talked about in this post form the pillars of any budget process – Government or Private Sector.

As sure as night follows day and the sun shines, budgets will always be the foundations from whence all economic prosperity flows. And so it is with bad budgets …

Researches and Budget framers can only use the evidence of trends from past performances. It is a case of having one eye focused on the future looking for bumps and freeways, half-an-eye on the now making sure that the forecasts are on track, and the other half-an-eye looking at the past looking for trends that might guide you to better decisions for the now and future.

Notes on the Source data:

This Economic Trigger research is an extensive extraction of Swan Budget ‘forecasts’ measured against ‘actual results’.

A lot of the research information comes from the Federal Budgets on-line source. Links to each Year’s Budget – www.budget.gov.au – for each of the forecast periods are provided below, with a separate link to display an Image file of the Budget forecast summary:

Analysis of the extracted data can only question Treasury’s modelling outcomes. Treasury consistently failed to predict the excess ‘revenues’ of the Howard era, and now they have overestimated ‘revenues’ and underestimated ‘expenditures’ all during the Rudd/Gillard years.

Historical Budget Outcomes 1996-2012:

The variance in Budget result – i.e. ‘actuals’, verses the Budget ‘forecasts’ since 1996 is plotted in the Chart below.

The Table at right is the data used in the previous chart.

The ‘Revenue’ variances of 2011 [12.94%] and 2012 [11.24%] appear well out of range with other ‘Revenue’ results – except for the 1999 Asian crisis where Costello saw revenue and expenditures actuals both come in at a bit over -11%.

The ‘Expense’ variance numbers up to 2007-08 show plus and minus results ranging from +6.3% to -4.26%.

What is notable is the ‘Expense’ average of the Howard years is -1.87%. By comparison the Rudd/Gillard tenure has ‘Expense’ variances averaging 3.24%

The ‘Revenue’ averaged for the Howard years is -0.41%, as opposed to the Rudd/Gillard years at -5.56%.

Without doubt the Treasury modelling under the Swan era has increased its error ranking by a factor of 498% – i.e. sum of Swan variances [-8.9%] / sum of Costello variances [-1.79%].

The harsh reality is the raw numbers for the Costello tenure accounted for a cumulative Budget result amounting to A$53 billion in surpluses, and the Swan results are A$135 billion of deficits.

This bottom line result of these two numbers of $188 billion has cause. But if we are to believe Mr Swan’s excuses in the last few years it has been because of ‘revenue write-downs’. The Table and Chart prove that Mr Swan has a completely different reason for his budgetary errors, and they are not because Treasury Modelling is solely to blame.

Chapter 8:

Budget Modelling:

The main triggers used to formulate the Federal Budget modelling are listed below –

Economic Triggers:

[Each of the Triggers listed below have been rated – “TR” = Trigger Rating – and measures the indicator and its influence on economic and Budgetary outcomes – the ranking is out of 10. Links for each Trigger to Wikipedia, ABS, RBA, or other source as provided.]

The ‘triggers’ used in this research all feed to Revenues, Expenditures, Debt, and when considered in the modelling phase of the Budget process. The forecasts are influenced by Government decisions and choices made about existing and new policy’s. Ultimately the Government is responsible for the Budget errors – yet, as history shows there is never any real accountability for retrospective errors.

All budget integrity is contained within their forecasts and estimates, i.e. the probable, versus the improbable, versus the impossible. Mr Swan’s budget forecasts are mostly about the impossible.

If the Government wants an outcome that the modelling cannot come up with, how does a Government go about get the result it needs to fund the policies they want to implement?

It is not hard to draw an argument that PM Gillard had an agenda based on election promises in the 2010 election. The most famous being the ‘No Carbon Tax’ and the new ‘MRRT’.

Swans biggest forecast errors came in the 2010-11, and the 2011-12 budgets, and all on the revenue side. Swan’s claims that the budget result went into tailspin deficits based of revenue expectations not being met, has face value creditability.

But to accept this reasoning you have to believe that the revenue forecasts were reasonable and achievable to begin with. The Table summary above proves that the consistency of errors on both sides of the budget make Mr Swan’s revenue expectations in the budgetary ‘impossible’ category.

When a Government promises a Budget surplus as iron-clad and as far out as PM Gillard and Treasurer Swan did in the 2010-11 budget, what can they do when it comes to 2012-13 budget time and the expenditures are locked in and already spent?

When the new ‘MRRT’ and ‘Carbon Tax’ fail to deliver the expected forecasts revenues, and the political equation in admitting to a failed ‘budget surplus’ promise means an even more woeful poll response, the craven way out is to blame the Treasury modelling.

This Government has fudged the numbers and proving it will be no easy feat. Someone in Treasury knows what’s going on and has help.

Table 1: Economic Trigger Forecasts v Actuals.

[click Table to enlarge in a new browser window – previously displayed in Post – Part 2.2]

This Table at right as previously stated provides the ‘actuals’ versed ‘forecast’ numbers for the Economic Triggers used in the Budget modelling for all Federal Budgets, and most other public and private budgets as well.

Table 1’s set of numbers represent the most sensitive triggers, CPI, Un-employment, GDP, Terms of Trade, and Current Account.

The Federal Budget forward estimates over each of the next four years are derived from these numbers.

Mr Swan knows the Treasury Modelling is unique and not property held outside the public domain.

He knows to try and duplicate how Treasury modelling use each of the economic indicators in Budget forecasting is a fool’s errand.

So why do this research you might ask?

As a moral exercise or challenge for each and everyone of us, It is important if you see something wrong or bad happening and you can do something about it, expose it, or report the problem. Our integrity and moral compass is guided by Societies expectations and those who can make a difference should do so. Walking away is the same as agreeing to what is happening … and so it is when apathy becomes the problem.

This Nation needs is more fixers and doers, not charlatans and pretenders fudging their way with no experience or understanding of their portfolio construct and responsibilities.

When Swan delivered his 2013-14 budget estimates/forecasts 14th May 2013, do you think he went back and looked at his 2009, ’10, ’11, and ’12 estimates/forecasts, and compared the actual outcomes with the past forecasts?

Do you think he pondered just how bad his Treasury Modelling performs?

Indicators like ‘Nominal GDP’ have appeared in Swan’s budget papers, yet were not even a part of the forecast in the Budget papers under Costello in 2007-08.

Chapter 9:

Budget Revenues –

Table 2.1 Analysis:

2008: Revenues: This was Swan’s first Budget and there may have been some expectation overflow from the Costello era the surpluses would just keep rolling in. The variances against expectations were significant – -6.4%, -13.1%, -13.9% and -7.8%.

2008 – Expenditures: The same with the Expenditures – the actuals exceeded the estimates by -11%, -9.2%, -7.1% and -11.4%. Add them together and the yearly estimates were, -17.4%, -22.3%, -21%, and -19.2%,

2009 – Revenues: The Revenue actuals hit close to target in 09-10, and 10-11, but had Costello type windfalls in 10-11, and 11-12.

2009 – Expenditures: As much as the revenues exceeded targets, the expenditures pretty much ran the other way for similar amounts. This budget was delivered in May ’09 after the worst of the GFC.

2010 – Revenues: The over-estimate errors returned for the Revenue. This was an Election budget and good forecasts were political capital.

2010 – Expenditures: Expenditures all over the place with over and under estimates of significant percentages recorded on the two completed years.

The cumulative sum of errors over the two completed years in percentage terms was 17.2% against forecasts. This was an Election budget and good forecasts were political capital.

2011 – Revenues: Only a single year of actuals are in – and again the forecasts were over-estimated.

2011 – Expenditures: The same happened with Expenditures and the result was almost identical. and Expenditures for error factors yields margins of error if applied to any family budget would cause weekly chaos.

Summary: 2008-09 was the GFC year and some budget estimate errors had to be expected for the forecasts made in the 2008-09 against actuals.

But by 2009-10 the currency had recovered, and China was buying our minerals as fast as we could ship them.

Australia had escaped the worst of the GFC yet the Rudd/Gillard and Swan teams continued with a spending spree that lasted well into 2011-12 budget cycle.

How Governments responded to the GFC was natural order in their want to protect what has been a way of life for western society for many decades.

Governments wanted to protect the corrupted Banking systems, the Corporate raiders, and the Government gravy ride.

Global Leaders were not prepared to make the hardest decision in a half a century and the globe will suffer at least another 10 years of economic hardship as a result.

… these variance numbers, i.e. +.03%, +1.55%, -1.0%, +0.4%, don’t mean a lot when taken in isolation as Treasury Head Dr Martin Parkinson spoke about in his Treasury response to criticism of the latest budget. See his speech here.

However – when the error factor multiplier is used to theorise about how a +1.55% becomes a 207% error, these variances impacts exponentially on CPI, revenues, expenditures, unemployment, interest rates, household consumption, and a host of other economic indicator outcomes.

Dr Parkinson’s flippant dismissal of the modelling errors is an indication of just how complacent the budget process has become. Another way to view the Treasury Departments modelling is to say that the numbers being produced cannot be trusted any more.

Good number increases for ‘GDP Growth’ and the ‘Terms of Trade’, as opposed to bad number increases in ‘Unemployment’ and ‘Current Account’, have the potential to produce ‘actuals’ that impact on all the other budget forecasts. For example the 2009-10 GDP forecasts were revised from the 2008-09 budget estimates as follows:

2009-10 … the 2008-09 number of 0.75% revised to -0.5%

2010-11 … the 2008-09 number of 3.0% revised to 2.25%

2011-12 … the 2008-09 number of 3.0% revised to 4.5% … and

2012-13 … of 4.5%

This analysis and the more to follow is complex and in a world with an attention span of a millisecond – this commentary means what to who?

To most people it’s ‘jack-shit’ … who in their right mind would do this type of research … well there are people who live for these sorts of equations and number extractions, and particularly so when they contain misrepresentations that allows a Government to perpetrate a continuing fraud on the Australian people.

Mr Swan has to take responsibility for his poor forecasts … he signs off on the budget numbers. Anything less diminishes his office and weakens Treasury creditability.

In the next Chapters more ‘Economic Triggers’ are examined.

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The Wayne Swan’s history can be told in each of his six previous Budgets. On each of these nights he stood before the Nation and gave us his forecasts for the Nation over the next 12 months, and across the forward estimates.

Below, those forecasts and outcomes are challenged and reviewed in the light of accountability, and why the numbers just never stacked up given the state of the economy.

To re-read these speeches is like being involved in a ‘Groundhog Day’ experience … Swan wrote these speeches without understanding the consequences of his responsibilities as Treasurer of the Nation.

In all the forecast’s researched in this project – there is no evidence recall of him even getting the big calls right … perhaps a CPI target here and there, but revenues, expenses, GDP, and the like were all grossly over or under estimated.

Treasury modelling have never got it so wrong so often on the big number calls.

Swan’s Promised Surpluses:

How many and how often did Mr Swan promise to deliver budget surpluses?

There were four [4] in the 2012-13 budget for the 2012-13, 2013-14, 2014-15 and 2015-16 budgets.

Gillard and Swan made the 2012-12 surplus an iron clad promise every year since 2010. In the six years of Swan budgets … the sum total is an error factor of $290 billion between forecasts and the reality to the 2011-12 year. The 2012-13 result will add another $30 odd billion to that number.

Swan’s “Jobs…Jobs…Jobs…” creation:[click on Table at right to enlarge.]

It’s all a myth – of the 960,000 in new jobs Swan brags about – 60% are part-time. Another statistic shows average monthly hours worked has fallen from 145.3 to 140.4 since Feb 2008. [see table above for evidence.]

This translates to less work and less take home pay, and as the economy slows in a post mining boom economy, the workforce will be hit hard through job losses and more reduced hours.

The saying that – ‘for every action there is an equal and opposite reaction’ – rings true in finance and economic forecasting. Swan’s predictions on jobs and unemployment, and all the other economic triggers have dire consequences if his numbers don’t measure up.

The title of the article was – “Swan confounds his domestic sceptics”, and was published Sept 2011.

This article read again with two more years of failed Swan promises makes one ponder how he was ever chosen as ‘Treasurer of the Year’. The award is voted on by Swans peers, other G20 delegates … and given how they have all managed to stuff the world up since the GFC … we have reason to spit in the eye of all who voted for Swan.

To see all previous winners of the award – use this link. Euromoney publish these comments to advise how they make their decisions.

Finance minister of the year

Euromoney considered ministers whose key decisions had directly benefited both the performance and perception of their country’s economic and financial achievements over the previous 12 months. It also took soundings from many leading global bankers and investors.

Swan’s Song – “Dunce Treasurer of a Generation”:

Mr Swan has my rating of his performances and it has been so for a number of years.

Anyone, and more importantly, any Political who cannot admit to failure or mistakes and do so without blaming others when the responsibility rests as in this case with the Treasurer, it measures the man in so many ways. The bar for Politicians has to be higher in accountability measures. If you stuff up you need to come clean.

This ‘little-boy’ in a giant tin hat is what ‘Bernie Madoff’ is to Ponzi schemes … what ‘George Bush Jnr’ is to America’s ‘horror’ history … Mr Swan brings new mediocrity to the role as Treasurer and his Caucus colleagues can’t see when it stare’s them in the face year after year.

Mr Swan is someone who overreached by a long way when promoted to Treasurer. He was smart enough to realise the overreach and has spent his whole time faking it, and just never admitting to his cock-up’s.

Australian’s will pay full price and more for the mistakes made by Mr Swan.

In fact – in his 2013 speech Mr Swan went on the attack over the failings of the economy to not match his forecasts. He actually blamed ‘Real’ versed ‘Nominal’ GDP forecasts for the actual revenues not matching the budget forecasts.

This is why modern politics is no longer about truth or honesty. To get it so wrong so often over the whole of the Swan tenure as Treasurer demands fresh accountability.

Humility still is a politician’s greatest asset and yet – none, I say again – none of our modern Leaders across all levels of politics will admit to error or show that humility when they have made mistakes.

Swan pushed the blame to the Treasury modelling – and that is such an easy choice – none of them can defend themselves on any public stage … unless of course someone turns whistle-blower.

There is ‘fraud’ in this budget, and it is not a stretch to say the same about Swan’s past budgets as well.

Late last week – Treasury Head Dr Martin Parkinson PSM came out and fronted the media after the media gave Swan’s Budget a serve.

… Today, I want to take you through some of the drivers of recent weakness in nominal GDP growth and the Government’s tax receipts, and consider why the extent of this weakness had not been anticipated. These drivers include:

the difficulty that we, and other economic forecasters, have had in predicting the future path of global commodity prices, the exchange rate and capital gains; and

the significant structural changes that have taken place since the Global Financial Crisis in the Australian economy and in the Government’s tax base.

I will provide my assessment of the extent to which these drivers are likely to be permanent or temporary; take you through what we are doing to improve our forecasting processes; and conclude with a few brief points on the role that higher productivity could play in promoting the fiscal sustainability of all levels of government in Australia over the medium term…

.. Continues …

…The fact is that we have always found forecasting nominal GDP and revenue to be more challenging than forecasting real activity, as hard as that is. And while there has always been a margin of error around the forecasts, I don’t believe they have blown out.

The mean absolute percentage error in our nominal GDP forecasts over the past 20 years has been 1.6 percentage points. Since the beginning of the mining boom in 2003 – a period of dramatically outsized movements in the terms of trade – this mean absolute percentage error has been larger at 1.9 percentage points. So, slightly larger than the implied 1¾ per cent forecasting error for last year’s Budget…

There is much in the speech that is challengeable – rather then get caught up in the defensive posture offered up by Treasury this point is noted. The 1.6% and 1.9% errors talked about in the extracts above equate to a 1.6% of the actual GDP growth – that is a 1.6% error on a 3% average number. That in real terms is like more than a 50% error on original estimates.

The same for the 1.9% [absolute % error] on Terms of Trade is also similarly presented to disguise the real $dollar value of the error.

Treasury have got it wrong for a long time – underestimating every one of Costello’s surplus budgets, and overestimating Wayne Swan’s revenue and expenditure budget forecasts. That is 17 years of bad estimates.

The errors in the Swan Budget’s amount to $290 billion when forecast surpluses/deficits measure up against actual results. This is to the end of 2012. All of which is now pretty much new debt created. [See previous Table 3 for more information.]

Surely if this was accountable politics, errors like this need to be accounted for. Why is Mr Swan still serving as Treasurer?

There is only one answer – to dump him pressures Julia Gillard’s position. If Gillard dumped Swan her Leadership would fail. So it comes to the case where mediocrity is rewarded, and Australia pays the price for incompetence.

The economic forecasts in Table 1 below are extracted for Budget papers for forecasts and actuals. The Treasury modelling errors are confirmed when they are matched up for past years.

CPI – is in line with RBA targeting. Un-employment through the GFC period was over-estimated which should have saved $billions in forecast expenditures.

The GDP Real and Nominal numbers are not too bad and within acceptable margins of error.

Table 1:[Budget Forecasts v Actuals for CPI, GDP Real and Nominal, Un-employment, Terms of Trade, and Current Account. Click to enlarge Table in a new window.]

Table 2:[Budget Forecasts v Actuals for Revenues, Expenditures, and Fiscal Result with GDP ratios. Click to enlarge Table in a new window.]

One only has to measure the depth and breadth of the numbers included in both Table 1 and Table 2 as presented above – and to compare the actuals v forecasts across all the six Swan Budgets to confirm an ongoing ‘fraud’ is exposed.

This Government’s socialist agenda to spend as much as needed to protect the workers from economic and market forces proves the agenda.

It is beyond comprehension in these global harsh times that so much protectionism is afforded when the Government of the day lies to the people about its budget forecasts to get the job done.

It is a case of telling the Business leaders on this Nation one thing and then setting agenda’s based on a completely different set of rules.

There is no thought process applied to how the consequences of the actions to let budgets run amok without prudent and required measures in place to halt spending when the revenues don’t measure up to forecasts.One only has to measure the depth and breadth of the numbers in this Table – actuals v forecasts across the six Swan Budgets to confirm an information ‘fraud’ has been committed.

His socialist commitment to spend as much as needed to protect workers from economic and market forces proves his agenda is beyond his comprehension of economic times. He also has no concept of a thought process to combat the reality of the numbers as they contradict his estimates.

The 2013-14 Budget was an election year Budget – yet the radical spend of past budgets was not evident as evident.

Has Swan realised that election defeat in three months means this budget has no validity?

Did he serve up this budget knowing it would come to nothing, as the new incoming Government would learn the full extent of the Government’s finances soon enough?

The future spend on the NDIS and Gonski will suck $10’s of billions from all future budgets.

How was Swan going to pay for these policies?

Yet – the Government is still hell bent on introducing the Legislation before they exit office.

How responsible is a Government that legislates policies with no plan in how to fund them, other than to find savings within the existing expenditures.

Who would trust Mr Swan to be able to do that?

With no chance of winning an election, and no understanding of how they will fund the NDIS and Gonski reforms, Swan and this Government have set about a fraud that leaves a legacy to create mayhem for any incoming administration.

No – that is hubris and demonstrates the arrogance Gillard and her team are all about.

In Table 2, the forecasts for ‘Revenues’, ‘Expenditures’, and ‘Fiscal Result’ is further examples of the Swan fraud.

The $1.5 billion surplus announced 12 months ago, and electorally locked as a surplus since 2010, is now admitted to be a $19.4 billion deficit. Who knows what level it will finally settle at – there is another three months of figures to be finalised.

Between the 2009 budget when Swan had ‘Headline’ forecasts of $180 billion over the forward estimates, to a 2010 forecasts for ‘Headline’ forecasts of $44 billion deficit. Swan used a ‘Picasso’ swipe to create $135 billion of revenues to reduce his forecast deficits.

At this stage the Carbon Tax and MRRT were still in the legislative stages. These numbers were fraudulent and deliberately so to serve political purposes. There was an election in 2010 and this was the setup budget for that election. At this stage Rudd was still PM – an dhe would have signed off on the forecasts.

There is plenty of reason to doubt the integrity and political agenda of all MP’s, but in Mr Swan’s case, it takes a particularly evil person to lie so obviously to the Australian people knowing that the consequences of that lie impacts on future generations in ways that Mr Swan will never have to be exposed to.

In other words – Cabinet Ministers are picked for political choices and reasons and not necessarily for what they might know about a particular portfolio. To that conclusion – it is not hard to lower the boom on our Leaders who struggle with their portfolio responsibilities.

There is a global trade war going on at the moment and out Leadership is oblivious to its impact or how Australia needs to respond to deal with the consequences.

This research has prompted several thoughts and questions. One such question is:

“Why does anyone want to be Prime Minister” – I don’t mean in the sense that it’s a great gig and all … but really – one would have to think they can bring something extraordinary to the table to even think that were qualified for the job –

Who measures that ability – voters, caucus, party members … or is it a question of who polls best, or who’s turn it might be, or who has the most factional support …

A response to this question in the context of Gillard and how she became PM challenges any belief in our parliamentary system – what is it that inspires anyone about Gillard and her team?

My annual viewing of the TV Political series – “The West Wing”, prompts the timing of the question.

During Series 3 episode 7 – where CJ Creeg – [Allison Jannely] does her thingy over the Republican Leaders response to the – ‘Why do you want to be the President’ question, I was perplexed to think about the question in a real setting.

Hence the thought about why someone like Gillard would want to be a Prime Minister. She has a criminal past, and is currently under police investigation – why would she tempt fate when she knows she can’t win give her past?

The question goes to any Leader … what can they bring to the table that will inspire a Nation …

In the next Chapters the ‘Economic Triggers’ are examined in more detail.

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The EYE-BALL Opinion.